Episode 81: “Canadian payroll compliance” series – What non-resident employers need to know


 

Release date: January 23, 2017
Guest: Chris Chan
Running time: 08:11 minutes

In this final episode of our “Canadian payroll compliance” podcast series, Chris Chan discusses the options non-resident employers have for complying with Canadian payroll regulations. This includes the Non-Resident Employer Certification program, introduced in 2016. Chris provides insight on recent CRA audit activity surrounding this program, as well as information about adjustments made to the program in January 2017.


Through interviews with prominent PwC tax subject matter professionals, Tax Tracks is an audio podcast series that is designed to bring succinct commentary on tax technical, policy and administrative issues that provides busy tax professionals information they require.

Transcript

Canadian payroll compliance for non-resident employers

Edmond: Hi, it’s Edmond Kwan of PwC Canada. Welcome to our third and final installment in our podcast series on Canadian payroll compliance. Today, we’re going to focus on Canadian payroll compliance for non-resident employers.

With us, we have Chris Chan, a senior manager with our Global Mobility Services group.

Chris: Thanks, Edmond. It’s a pleasure to be here.

Edmond: Chris, why should non-resident employers be concerned about Canadian payroll compliance?

Chris: Great question, Edmond. The reality is that non-resident employers with non-resident employees working in Canada are subject to the same Canadian income tax withholding requirements as Canadian resident companies. This withholding requirement exists even if the non-resident employees are ultimately exempt from Canadian personal taxation under a tax treaty that Canada has signed with another country.

Prior to 2016, in order to comply with Canadian payroll regulations, non-resident employers had to either file for waiver applications for each employee working in Canada or remit Canadian taxes for compensation paid to employees. As a result, compliance was administratively burdensome and non-compliance can lead to a significant tax and penalty exposure.

Edmond: So what changed in 2016?

Chris: In an effort to relieve some of the administrative burden that non-resident employers face when trying to comply with Canadian payroll regulations, the Canada Revenue Agency (or the CRA) introduced its Non-Resident Employer Certification Program in January 2016. This Certification program provides “qualifying non-resident employers” with an exemption from the requirement to withhold Canadian income taxes on compensation paid to “qualifying non-resident employees” working in Canada. In order to qualify, non-resident employers must:

  1. Be a resident in a country with which Canada has signed a tax treaty; and
  2. File Form RC473 with the CRA.

Meanwhile, “qualifying non-resident employees” are employees that:

  1. Reside in a country with which Canada has signed a tax treaty
  2. Are exempt from Canadian personal taxation under a tax treaty; and
  3. Either spend less than 45 workdays in Canada during the calendar year, or less than 90 physical days in Canada during any rolling 12-month period.

If both the non-resident employer and non-resident employee meet these conditions, then the employer is exempt from withholding Canadian income taxes on compensation paid to its non-resident employee for work performed in Canada.

Edmond: It certainly sounds like the Certification Program has its advantages. But are there any other requirements associated with certification?

Chris: Well, in order to maintain certification, non-resident employers must abide by various requirements, including:

  1. Proactively tracking their non-resident employees’ days in Canada and the compensation attributable to their workdays in Canada
  2. Evaluating and documenting how they have determined the employees’ residency status and how the non-resident employees are exempt from Canadian taxation
  3. Applying for a Canadian Business Number if the employer does not already have one
  4. Filing the appropriate Canadian T4 slips where applicable
  5. Filing the applicable Canadian corporate income tax return each year; and
  6. Making books and records available to the CRA upon any review.

Edmond: So have you seen the CRA conduct any reviews on the Certification Program yet?

Chris: Yes, I have. Near the end of 2016, the CRA issued a large number of review letters to various non-resident employers who had received certification in order to test how these employers were abiding by the compliance requirements. Non-resident employers were required to provide the CRA with information pertaining to the number of days spent in Canada by their non-resident employees, as well as provide an explanation on the process it takes to determine how an employee meets the definition of a “qualifying non-resident employee”.

Edmond: That’s good to know. It sounds like “qualifying non-resident employers” really need to ensure they follow the Certification Program’s compliance requirements.

Chris: Yes, absolutely.

Edmond: Chris, you also mentioned earlier that “qualifying non-resident employers” need to file the appropriate Canadian T4 slips where applicable. So, in what circumstances would a T4 slip be required?

Chris: “Qualifying non-resident employers” need to file T4 slips for any non-resident employees who earned more than C$10,000 of compensation attributable to Canadian workdays during the year. We’re now in January 2017, so “qualifying non-resident employers” should review and determine whether they need to file Canadian T4 slips for the 2016 tax year by the filing deadline of February 28, 2017.

Edmond: Do non-resident employees have to have a Canadian Social Insurance Number or some form of taxpayer identification number before the T4 slips can be filed?

Chris: Really good question. It’s our understanding from the CRA that under this Certification Program, T4 slips for “qualifying non-resident employees” can be filed without any taxpayer identification numbers. The CRA will not look to revoke a non-resident employer’s certification status if T4 slips are received without a Canadian taxpayer identification number on them.

Edmond: That sounds like some good news. So, is the Certification Program the only way for non-resident employers to comply with Canadian payroll regulations now?

Chris: No, it’s not. The Certification Program was introduced as a supplement to the existing compliance methods. Non-resident employers can still file individual waiver applications per employee or remit Canadian income taxes should they decide to not file for certification. However, there’s one very recent update that I would like to highlight.

As of January 1, 2017, the Regulation 102 “J” waiver application that many non-resident employers, in particular US employers, filed for each employee working in Canada is no longer available. Also, the previously available “conference exception” which was available for non-resident employees attending conferences in Canada in certain circumstances has also been removed by the CRA. These latest changes are part of the CRA’s push to have non-resident employers apply for certification. The Regulation 102 “R” waiver application remains available; however, it has historically been administratively burdensome to complete and it remains to be seen whether the CRA will make any revisions to this form in light of the removal of the “J” waiver.

Edmond: Thanks for the update and thanks for joining us today, Chris. If listeners to this podcast have any questions pertaining to Canadian payroll compliance for non-residents and the Non-Resident Employer Certification Program, can they contact you to discuss further?

Chris: Certainly!

Edmond: For any questions pertaining to this podcast, Chris’ contact details are listed on our PwC podcast website at www.pwc.com/ca/taxtracks. I encourage our listeners to stay tuned for upcoming podcasts in this series.
 

Contact us

Chris Chan

Senior Manager, Global Mobility Services

Tel: +1 416 815 5258

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